The chances of beating the odds, reckons Bipin Preet Singh, increase manifold for an “underdog”. The cofounder of India’s second largest mobile wallet, MobiKwik, knows the kind of odds stacked against him: the Alibaba-backed largest wallet player Paytm, which recently raised $1.4 billion funding from SoftBank and claims to have over 220 million users, has been aggressively using cashbacks to lure users; the third largest wallet player FreeCharge has been on the block — Paytm is reportedly close to buying it out — putting a question mark on the viability of the wallet business; traditional banks such as HDFC Bank and ICICI Bank have been mounting pressure with their own wallet play; and government’s BHIM (Bharat Interface for Money), a mobile payment app based on Unified Payment Interface, has not been making things easy for wallets where margins are wafer thin or almost non-existent.

Time, therefore, seems ripe to look beyond the wallet business. “We want to evolve into a smart money application,” says Singh, claiming that his company has over 55 million users and more than 1.5 million merchants — and that an astounding 1.4 million merchants were added after demonetisation last November.

MobiKwik, he contends, is one of the two companies in the wallet space that has the scale and the ecosystem of users and merchants to stretch beyond wallets. The eight-year-old startup, he asserts, is in the final stages of closing a new round of funding — most likely $100 million — which will put it in the billion-dollar club. MobiKwik has so far raised $80 million in three rounds, from investors such as Sequoia Capital and American Express.

Blueprint for TomorrowHere’s the financial services blueprint for MobiKwik 2.0: giving users credit lines of Rs 1 lakh in tie-ups with banks and NBFCs; offering personal loans to millions outside the net of traditional banks because of their poor credit-worthiness; selling insurance to shopkeepers; and getting into auto insurance and cashless mediclaim segments.

“MobiKwik’s opportunity might lie in its relatively focused and cautious approach in building a payments business,” says Shubhankar Bhattacharya, venture partner at Kae Capital. “While Paytm has chosen to enter the banking space, MobiKwik might benefit from adding complements to its core offering, while staying true to its identity as a payments solution.”

Take, for instance, the move to sell fire and shop insurance to small shopkeepers and medium businesses. “Most shopkeepers in this country don’t have insurance,” says Singh. And it doesn’t cost much, maybe just Rs 1,500-2,000 a year. More than 50% do not have a current account, he contends, sharing data from a recent informal survey that he commissioned of hundreds of small business entrepreneurs across the country. “Almost 90% of them asked us, ‘How can I get a credit card?’” he says. While everybody is targeting the same top 10 million customers and premium merchants, MobiKwik feels the opportunity lies at the bottom of the pyramid and in focusing on those excluded from the financial net.

Doesn’t the new business model look similar to that of a slew of fintech startups that are already into lending and other financial services? Singh says there are enough differentiations. Take, for instance, the decision not to convert into a marketplace, where one can get a comparison of different kinds of financial products and lending rates. While there are different models in the fintech ecosystem, what would help MobiKwik is forging a stronger relationship with the customer, he adds.

“The customer will have a primary relationship with MobiKwik,” he says, pointing out how. In doling out personal loans in tie-ups with banks and NBFCs, MobiKwik will be the front end through which a user would apply for loan, provide documents, and get the amount disbursed in her account. “No visits to bank, no calls from banks verifying your documents — everything will be taken care by us,” he says. Banks, he lets on, are not rivals but partners, as the company embarks on a new journey.

Rivals No MoreBanks too don’t see wallet players as their rivals. “The writing has been on the wall for quite some time now,” says Dipak Gupta, joint managing director of Kotak Mahindra Bank. It is difficult for wallets to survive economically in their existing form. Gupta lists the reasons: One, customers do not want to pay for payment transactions, and it is very difficult to change this behaviour and attitude. Two, while volume of transactions is large for wallets, the ticket size is very low; and, three, there is limited differentiation in this space and hence it is difficult for all players to do well. Given this backdrop, it is essential for wallet and fintech companies to move up the value chain, and enter business arenas that offer potential for higher revenue and growth, he adds (See interview “It’s Not Us vs Them”).

Investors are not surprised as wallets players don a bank-like avatar. It was always clear that payments will evolve into a data business, and wallets will morph into financial services marketplaces, says Sanjay Swamy, managing partner at Prime Venture Partners. “This is a natural evolution,” he says. India is at a nascent stage in financial services and customer acquisition costs will be key to making these financial services viable. The move, adds Swamy, will also result in a lot of new, innovative financial services offered in partnership with various channels. “Exciting times lie ahead for consumers and fintech players.”

What accelerated the evolutionary process for the wallet players was a structural shift in banking infrastructure post demonetisation. With over 400 million Aadhaar-linked bank accounts at present and a target of 25 billion digital transactions set by the Finance Ministry for 2018, traditional banks and financial institutions are rapidly embracing the digital, says Rajeev Banduni, cofounder of GrowthEnabler, a London-based company that provides data and intelligence from the global startup ecosystem.

Data is KingThe business opportunity emerging from having access to millions of users is immense. As wallets continue to expand their user-base while retaining users, they could diversify with a wealth management vertical and collaborate with various financial institutions to cross-sell or upsell their products. The zettabytes of transactional data generated by wallets, Banduni points out, could be analysed with big data, artificial intelligence and deep learning for credit scoring or various other financial metrics. In fact, one can draw a lot of similarities between Paytm and Alipay, which also started as a payment gateway in 2004, amassed over 400 million users and then launched Ant Financial, a conglomerate that’s currently valued over $60 billion. MobiKwik is partnering with state-owned electricity boards and national highway toll booths to power their payments. “It’s also evolving as a digital platform for cross-selling insurance and other financial products,” adds Banduni.

The going, however, might not be easy for MobiKwik. Reason: Transitioning into a full-service firm is an entirely different ballgame. For all the criticism thrown at many of India’s banks, NBFCs and insurance providers, the most successful ones have earned significant loyalty from their target audience and target users through rigorous execution, says Bhattacharya of Kae Capital.

For all its focus on keeping its head down and executing, the biggest challenge for MobiKwik might be to acquire customers in a manner that allows it to, at the least, maintain its position as a credible No. 2. “Becoming a unicorn (a billion-dollar valuation) alone might not add anything material in its battle against Paytm and a newer generation of payments companies,” he says.

Another potential challenge will come from customer acquisition cost and sustainable revenue models and margins. This means that MobiKwik will need more funding to sustain its operations. Will the $100 million it expects to close soon be enough in a segment where recently Paytm raised a mammoth $1.4 billion? Singh insists $100 million will be sufficient. Does it, he asks, make a difference that there is another player that has raised over a billion dollars and MobiKwik just $100 million? “The answer is no,” he says, adding that he is aware of the perils of riding the funding tiger.

“You need to continuously feed it, and keep feeding it.” Over the past few months, the startup ecosystem has seen many wellfunded players shutter or go wrong. From ecommerce to groceries to mobile wallets, casualties are galore. “I plan to turn profitable in the next 18 months and not think about raising billions of dollars,” he says. Singh’s mantra for success: “Focus on profitable growth and not valuation.” Will the underdog have his day?